In the opening remarks of the 2024 Investing in African Mining Indaba in Cape Town, President Cyril Ramaphosa spoke about significant transformation in South Africa’s mining industry over the past three decades and that mining has a crucial role to play in building the economy of tomorrow.
The President acknowledged the increase in black ownership from about two percent in 2004 to 39% today as an outcome of the introduction of the Mining Charter and that a legal regime confers responsibility on mining companies to provide quality services and promote community development in areas in which they operate.
He noted the country’s domestic challenges of the energy crisis, port and rail bottlenecks, illicit mining and infrastructure vandalism that are hindering mining output and returns, and reiterated the government’s commitment to overcome these serious challenges.
Ramaphosa reported back on the four key objectives of the government in this industry during the past year. These were:
- To achieve a secure supply of electricity
- To accelerate economic reforms to enable businesses to operate optimally
- To tackle illegal mining and damage to infrastructure
- To improve the regulatory environment and establish a new cadastral system.
Against a background of an overall drop in mining production from R1.2-trillion in 2022 to R1.1 trillion in 2023 (source: Minerals Council South Africa) and a reduction in contribution to GDP, Alchemy Law weighs in on Ramaphosa’s address and whether these objectives have been met.
Electricity
“It is unsurprising that one of the key issues addressed by President Ramaphosa is the ongoing electricity crisis. He acknowledges how severely the mining industry has been impacted by it and the implications this has had for the South African economy. The energy crisis was certainly long in the making and arguably it could have been avoided through earlier interventions to diversify the country’s energy mix away from fossil-fired power generation (specifically coal power generation considering South Africa’s ageing coal power infrastructure). That said, in recent years, the government has ramped up its efforts to address the situation through various mechanisms and initiatives that, importantly, enable the private sector (and crucial industries such as mining) to become less reliant on Eskom,” comments Alchemy Law partner Leana Engelbrecht.
It is also worth noting that the South African government has adopted a more ambitious strategy to give effect to its commitments under the Paris Convention through, among other things, adopting the JET IP and the Energy Action Plan. Through these it aims for 41% of total energy capacity to be generated through renewable energy by 2030 (compared to the 2020 target of 11%) – targets that cannot be achieved without the private sector’s involvement (Ramaphosa mentioned that requests have been released for proposals of another 5 000 megawatts (MW) of renewable energy).
To achieve these targets, it has (i) increased the bidding opportunities under REIPPPP and sped up the process of concluding REIPPPP power purchase agreements; (ii) introduced other renewable energy programmes such as the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP); and (iii) addressed certain regulatory barriers that prevented or at least severely hampered the private sector’s ability to generate electricity for own use. These efforts are reflected in the Integrated Resource Plan of 2023 which was published by the Department of Mineral Resources and Energy (DMRE) for public comment in January this year.
The private sector has encouragingly taken up the task of addressing the electricity crisis and there are now various options for the mining operators to secure private, reliable, renewable, sources of electricity production – addressing at least one of the myriad of infrastructure challenges faced by the industry and at the same time helping to curtail some of their own operational costs.
Transport infrastructure and logistics
In his address, Ramaphosa suggests that through cooperation between the private sector, Transnet, and security services, key rail freight corridors are improving and the country’s freight logistics system is undergoing rapid and fundamental change to improve its efficiency.
However from a stakeholder’s perspective, this addressing of infrastructure woes by the government, does not appear to reflect significant improvement in the past year.
“A topic that is receiving a lot of attention from delegates at the Indaba is the increasing problems with South Africa’s rail and ports,” says Wildu du Plessis a partner at Alchemy Law. “The current position with both rail and port is having a huge throttling effect on South Africa’s mining industry and needs to be addressed urgently,” he adds.
The graph below clearly depicts the challenges still being faced with rail and port networks requiring significant intervention before any progress can be made.
Ramaphosa, in his statement, did concur though, “That without bold, transformative reforms in the logistics sector, mining cannot flourish.”
A new cadastral system
The sentiment among delegates at the Indaba was cautiously optimistic with the announcement of the new cadastral system and the appointment of an external, reputable and experienced service provider or rather a consortium of providers. Despite needing patience while this is yet to be implemented (12- 24 months), questions still remain as to whether this will cause further backlogs in the already constrained licensing process or whether some relief and progress will be seen.
“A period of legal disputes following the establishment of this system should not be unexpected –integration transparency and the capturing of mining rights many of which are historically paper-based and not securely, centrally or formally filed, are most likely going to incur further delays and different challenges,” notes Alchemy Law partner Morné van der Merwe.
Embracing the power of positive disruption
Ramaphosa spoke about the theme of this year’s Indaba of embracing the power of positive disruption. He highlighted that the vast majority of the minerals needed for a global energy transition are beneath the soil of our continent – manganese, iron ore, copper, cobalt, platinum group metals, and nickel and that Africa has the potential to be the fulcrum of the global energy transition.
He concluded by saying: “We look forward to deepening our collaboration with industry as we write a new chapter in the history of South African mining. A story of inclusion, growth, transformation and innovation – and one in which no one is left behind.”
A critical aspect for the industry going forward is the inclusion and embracing of ESG principles through the mining lifecycle – surprisingly, this was not touched on in the opening address.
We too, at Alchemy Law, look forward to seeing a more positive and productive upcycle in the mining industry, but we are well aware that this will take a lot of recalibration, effort and collaboration by all industry stakeholders. It also needs to happen with the utmost urgency in order for the industry not to fall further behind global sector competitors, to attract investors, and to grow our own struggling economy and once again be a significant contributor to the country’s GDP.